UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
[X] QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
FOR THE QUARTERLY PERIOD ENDED: SEPTEMBER 30, 2014
OR
[
] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission
File Number: 000-53586
THE
PULSE BEVERAGE CORPORATION
(Exact name of registrant as specified in its charter)
Nevada
|
36-4691531
|
(State
or other jurisdiction of incorporation of
organization)
|
(I.R.S.
Employer Identification No.)
|
11678
N Huron Street, Northglenn, CO 80234
(Address
of principal executive offices, including zip code)
(720)
382-5476
(Telephone
number, including area code)
Indicate by
check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES
[X] NO [ ]
Indicate by
check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
YES
[X] NO [ ]
Indicate by
check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the
definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
|
Large
Accelerated Filer
|
[
]
|
|
Accelerated
Filer
|
[
]
|
|
Non-accelerated
Filer
|
[
]
|
|
Smaller
Reporting Company
|
[X]
|
Indicate by
check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act).
YES
[ ] NO [X]
Indicate the
number of shares outstanding of each of the issuer’s classes of common stock,
as of the latest practicable date:
52,776,037 shares of
common stock, par value $0.00001, as of November 14, 2014.
THE
PULSE BEVERAGE CORPORATION
FORM 10-Q
INDEX
FORWARD-LOOKING
STATEMENTS
This Report on Form 10-Q contains forward-looking
statements within the meaning of the “safe harbor” provisions of the Private
Securities Litigation Reform Act of 1995. Reference is made in particular
to the description of our plans and objectives for future operations,
assumptions underlying such plans and objectives, and other forward-looking
statements included in this report. Such statements may be identified by
the use of forward-looking terminology such as “may,” “will,” “expect,” “believe,”
“estimate,” “anticipate,” “intend,” “continue,” or similar terms, variations of
such terms or the negative of such terms. Such statements are based on
management’s current expectations and are subject to a number of factors and
uncertainties, which could cause actual results to differ materially from those
described in the forward-looking statements. Such statements address
future events and conditions concerning, among others, capital expenditures,
earnings, litigation, regulatory matters, liquidity and capital resources, and
accounting matters. Actual results in each case could differ materially
from those anticipated in such statements by reason of factors such as future
economic conditions, changes in consumer demand, legislative, regulatory and competitive
developments in markets in which we operate, results of litigation, and other
circumstances affecting anticipated revenues and costs, and the risk factors
set forth under the heading “Risk Factors” in our Annual Report on Form 10-K
for the fiscal year ended December 31, 2013 filed on March 31, 2014.
YOU SHOULD NOT PLACE UNDUE RELIANCE ON
THESE FORWARD LOOKING STATEMENTS
The forward-looking statements made in this report
on Form 10-Q relate only to events or information as of the date on which the
statements are made in this report on Form 10-Q. Except as required by
law, we undertake no obligation to update or revise publicly any
forward-looking statements, whether as a result of new information, future
events, or otherwise, after the date on which the statements are made or to
reflect the occurrence of unanticipated events. You should read this
report and the documents that we reference in this report, including documents
referenced by incorporation, completely and with the understanding that our
actual future results may be materially different from what we anticipate.
Unless otherwise
indicated, in this Form 10-Q, references to “we,” “our,” “us,” the “Company,”
“Pulse” or the “Registrant” refer to The Pulse Beverage Corporation, a Nevada
corporation.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The Pulse Beverage Corporation
Condensed Balance Sheets
As of September 30, 2014 (Unaudited) and December 31,
2013
|
|
2014
$
|
|
|
2013
$
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
165,778 |
|
|
1,774,994 |
|
Accounts receivable (Note 3) |
|
800,962 |
|
|
431,399 |
|
Inventories (Note 4) |
|
1,259,859 |
|
|
1,187,978 |
|
Other current assets |
|
133,856 |
|
|
195,589 |
|
|
|
|
|
|
|
|
Total Current Assets |
|
2,360,455 |
|
|
3,589,960 |
|
Property and equipment, net of accumulated depreciation of $153,192 and $88,740, respectively |
|
323,649 |
|
|
340,052 |
|
Other assets |
|
|
|
|
|
|
Loan receivable, net of current portion – related party (Note 5) |
|
178,629 |
|
|
182,738 |
|
Intangible assets, net of accumulated amortization of $79,483 and $54,228, respectively |
|
1,162,300 |
|
|
1,150,851 |
|
Total Other Assets |
|
1,340,929 |
|
|
1,333,589 |
|
|
|
|
|
|
|
|
Total Assets
|
|
4,025,033 |
|
|
5,263,601 |
|
|
|
|
|
|
|
|
LIABILITIES AND
STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses |
|
687,659 |
|
|
401,418 |
|
|
|
|
|
|
|
|
Total Current Liabilities
|
|
687,659 |
|
|
401,418 |
|
|
|
|
|
|
|
|
Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock, 1,000,000 shares authorized, $0.001 par value, none
issued
|
|
|
|
|
- |
|
Common Stock, 100,000,000 shares authorized, $0.00001 par value
52,076,037 and 51,654,135 issued and outstanding, respectively (Note 6)
|
|
521 |
|
|
517 |
|
Additional Paid-in Capital
|
|
12,935,741 |
|
|
12,668,580 |
|
Deficit
|
|
(9,598,888 |
) |
|
(7,806,914 |
) |
|
|
|
|
|
|
|
Total Stockholders’ Equity
|
|
3,337,374 |
|
|
4,862,183 |
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders’ Equity
|
|
4,025,033 |
|
|
5,263,601 |
|
(See Notes to Financial Statements)
1
The Pulse Beverage Corporation
Condensed Statements of Operations
Three Months and Nine Months Ended September 30, 2014
and 2013
(Unaudited)
|
|
Three Months Ended September 30, 2014
$
|
|
|
Three Months Ended September 30, 2013
$
|
|
|
Nine Months Ended September 30, 2014
$
|
|
|
Nine Months Ended September 30, 2013
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Sales
|
|
1,144,846 |
|
|
1,102,026 |
|
|
3,198,935 |
|
|
3,379,815 |
|
Less: Promotional Allowances and Slotting Fees
|
|
(107,371 |
) |
|
(93,314 |
) |
|
(236,141 |
) |
|
(251,924 |
) |
Net Sales
|
|
1,037,475 |
|
|
1,008,710 |
|
|
2,962,794 |
|
|
3,127,891 |
|
Cost of Sales
|
|
721,609 |
|
|
662,944 |
|
|
1,994,117 |
|
|
2,026,118 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
315,866 |
|
|
345,766 |
|
|
968,677 |
|
|
1,101,773 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Advertising, samples and displays |
|
28,947 |
|
|
111,703 |
|
|
102,176 |
|
|
242,555 |
|
Freight-out |
|
118,013 |
|
|
114,898 |
|
|
326,831 |
|
|
345,704 |
|
General and administration |
|
426,047 |
|
|
394,930 |
|
|
1,264,257 |
|
|
1,183,804 |
|
Salaries and benefits and broker/agent’s fees |
|
357,562 |
|
|
383,031 |
|
|
1,015,393 |
|
|
1,063,151 |
|
Stock-based compensation |
|
- |
|
|
80,792 |
|
|
166 |
|
|
394,845 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expenses
|
|
930,569 |
|
|
1,085,354 |
|
|
2,708,823 |
|
|
3,230,059 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Operating Loss
|
|
(614,703 |
) |
|
(739,588 |
) |
|
(1,740,146 |
) |
|
(2,128,286 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset impairment |
|
(55,996 |
) |
|
- |
|
|
(55,996 |
) |
|
(7,385 |
) |
Forgiveness of debt |
|
- |
|
|
- |
|
|
- |
|
|
6,486 |
|
Interest income, net |
|
1,103 |
|
|
3,214 |
|
|
4,168 |
|
|
13,277 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other Income (Expense)
|
|
(54,893 |
) |
|
3,214 |
|
|
(51,828 |
) |
|
12,378 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
(669,596 |
) |
|
(736,374 |
) |
|
(1,791,974 |
) |
|
(2,115,908 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss Per Share – Basic and Diluted
|
|
(0.01 |
) |
|
(0.01 |
) |
|
(0.04 |
) |
|
(0.04 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares Outstanding – Basic and
Diluted
|
|
51,975,000 |
|
|
51,492,000 |
|
|
51,811,000 |
|
|
49,308,000 |
|
(See Notes to Financial Statements)
2
The Pulse Beverage Corporation
Condensed Statements of Cash Flows
Nine Months Ended September 30, 2014 and 2013
(Unaudited)
|
|
2014 $ |
|
|
2013
$
|
|
Operating Activities
|
|
|
|
|
|
|
Net loss |
|
(1,791,974 |
) |
|
(2,115,908 |
) |
Less non-cash items: |
|
|
|
|
|
|
Amortization and depreciation |
|
89,708 |
|
|
65,701 |
|
Asset impairment |
|
55,996 |
|
|
7,385 |
|
Shares and options issued for services |
|
221,166 |
|
|
666,628 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
(Increase) in accounts receivable |
|
(369,563 |
) |
|
(601,359 |
) |
Decrease in prepaid expenses |
|
6,473 |
|
|
57,346 |
|
(Increase) in inventories |
|
(124,506 |
) |
|
(487,866 |
) |
Increase in accounts payable and accrued expenses |
|
286,241 |
|
|
222,537 |
|
|
|
|
|
|
|
|
Net Cash Used in Operating Activities
|
|
(1,626,459 |
) |
|
(2,300,228 |
) |
|
|
|
|
|
|
|
Investing Activities
|
|
|
|
|
|
|
Repayment of note receivable - related party |
|
3,949 |
|
|
3,794 |
|
Acquisition of property and equipment |
|
- |
|
|
(36,240 |
) |
Acquisition of intangible assets |
|
(36,706 |
) |
|
(55,722 |
) |
|
|
|
|
|
|
|
Net Cash Used in Investing Activities
|
|
(32,757 |
) |
|
(88,168 |
) |
|
|
|
|
|
|
|
Financing Activities
|
|
|
|
|
|
|
Proceeds from the sale of common stock, net of costs |
|
50,000 |
|
|
4,058,600 |
|
|
|
|
|
|
|
|
Net Cash Provided by Financing Activities
|
|
50,000 |
|
|
4,058,600 |
|
|
|
|
|
|
|
|
(Decrease) Increase in Cash
|
|
(1,609,216 |
) |
|
1,670,204 |
|
|
|
|
|
|
|
|
Cash - Beginning of Period
|
|
1,774,994 |
|
|
744,906 |
|
|
|
|
|
|
|
|
Cash - End of Period
|
|
165,778 |
|
|
2,415,110 |
|
|
|
|
|
|
|
|
Non-cash Financing and Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares and options issued for services, debt and prepaid expenses |
|
217,166 |
|
|
461,483 |
|
|
|
|
|
|
|
|
Supplemental Disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid |
|
2,151 |
|
|
433 |
|
Income tax paid |
|
- |
|
|
- |
|
|
|
|
|
|
|
|
(See Notes to Financial Statements)
3
The Pulse Beverage Corporation
Notes to Financial Statements
|
The Pulse Beverage Corporation manufactures and distributes Natural Cabana™ Lemonades, Limeades and Coconut Waters; and PULSE® Heart & Body Health functional beverages. |
|
The condensed interim financial statements included herein, presented in accordance with United States generally accepted accounting principles and stated in US dollars, have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. |
|
These statements reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for fair presentation of the information contained therein. It is suggested that these interim financial statements be read in conjunction with the financial statements of the Company for the period ended December 31, 2013 and notes thereto included in the Company's Form 10-K. The Company follows the same accounting policies in the preparation of interim reports. |
|
Results of operations for the interim periods are not indicative of annual results. |
2.
|
Summary of Significant Accounting Policies
|
|
The preparation of financial statements in accordance with United States generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses in the reporting period. We regularly evaluate estimates and assumptions related to the useful life and recoverability of long-lived assets, stock-based compensation, and deferred income tax asset valuation allowances. We base our estimates and assumptions on current facts, historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by us may differ materially and adversely from our estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected. |
|
Intangible assets are comprised primarily of the cost of formulations of our products and of trademarks that represent our exclusive ownership of Natural Cabana®, PULSE® and PULSE: Nutrition Made Simple®, all used in connection with the manufacture, sale and distribution of our beverages. We evaluate our trademarks annually for impairment or earlier if there is an indication of impairment. If there is an indication of impairment of identified intangible assets not subject to amortization, we compare the estimated fair value with the carrying amount of the asset. An impairment loss is recognized to write-down the intangible asset to its fair value if it is less than the carrying amount. The fair value is calculated using the income approach. However, preparation of estimated expected future cash flows is inherently subjective and is based on our best estimate of assumptions concerning expected future conditions. |
|
Revenue is recognized in accordance with Staff Accounting Bulletin (“SAB”) No. 101, Revenue Recognition in Financial Statements, as revised by SAB No. 104. We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable and collectability is reasonably assured. Ownership and title of our products pass to customers upon delivery of the products to customers. Certain of our distributors may also perform a separate function as a co-packer on our behalf. In such cases, ownership of and title to our products that are co-packed on our behalf by those co-packers who are also distributors, passes to such distributors when we are notified by them that they have taken transfer or possession of the relevant portion of our finished goods. Net sales have been determined after deduction of discounts, slotting fees and other promotional allowances in accordance with ASC 605-50. |
|
We continually assess any new accounting pronouncements to determine their applicability to us. Where it is determined that a new accounting pronouncement affects our financial reporting, we undertake a study to determine the consequence of the change to our financial statements and assure that there are proper controls in place to ascertain that our financial statements properly reflect the change. |
4
|
Accounts receivable consist of the following: |
|
|
|
September 30, 2014
$
|
|
|
December 31, 2013
$
|
|
|
|
|
|
|
|
|
|
|
Trade accounts receivable
|
|
786,679 |
|
|
396,014 |
|
|
Less: Allowance for doubtful accounts
|
|
(13,680 |
) |
|
(13,680 |
) |
|
Trade accounts receivable - net
|
|
772,999 |
|
|
382,334 |
|
|
Employee advances
|
|
1,150 |
|
|
4,366 |
|
|
Volume rebate receivable
|
|
- |
|
|
7,000 |
|
|
Due from a co-packer
|
|
26,813 |
|
|
37,699 |
|
|
|
|
800,962 |
|
|
431,399 |
|
|
Inventories consist of the following: |
|
|
|
September 30, 2014
$
|
|
|
December 31, 2013
$
|
|
|
|
|
|
|
|
|
|
|
Finished Goods
|
|
571,841 |
|
|
398,848 |
|
|
Deposits on Finished Goods
|
|
67,706 |
|
|
54,434 |
|
|
Work in Process
|
|
15,122 |
|
|
- |
|
|
Raw Materials |
|
605,190 |
|
|
734,696 |
|
|
|
|
1,259,859 |
|
|
1,187,978 |
|
5.
|
Loan Receivable – Related Party
|
|
Pursuant to a Letter Agreement dated December 24, 2010 between us and Catalyst Development Inc., (“Catalyst”) a company owned by our Chief of Product Development, we loaned $200,000 to Catalyst. The loan bears interest at a rate of 4% per annum, is amortized over 25 years and matures on May 16, 2016 with a balloon payment due in the amount of $174,000. Catalyst repays this loan on a monthly basis at $1,055 principal and interest. As of September 30, 2014, the remaining principal balance due is $184,081 of which $5,452 is current and included in Other Current Assets, the balance of $178,629 is long-term. |
|
During the three months ended September 30, 2014 we issued a total of 250,000 common shares, having an average fair value of $108,000, pursuant to agreements for services rendered. We also received $50,000 pursuant to a subscription; terms and issuance to be determined. |
|
As at September 30, 2014 we had 20,234,247 common share purchase warrants outstanding having an average exercise price of $0.62 per common share and having an average expiration date of 1.57 years. |
|
We evaluated all subsequent events through the date these financial statements were issued and determined that there are no subsequent events to record and the following subsequent events to disclose: |
5
|
a)
|
we issued 700,000 common shares valued at $212,000 pursuant to service agreements;
|
|
b)
|
we received a further $50,000 pursuant to a subscription;
|
|
c)
|
we incorporated a wholly-owned Mexico subsidiary, Natural Cabana S.A. de CV, on October 13, 2014.
|
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
The discussion
that follows is derived from our unaudited interim Condensed Balance Sheet as
of September 30, 2014 and our audited Balance Sheet as at December 31, 2013,
our unaudited interim Condensed Statements of Operations for the three months
and nine months ended September 30, 2014 and 2013, and our unaudited interim Condensed
Statements of Cash Flows for the nine months ended September 30, 2014 and 2013.
Overview
We
began production of Natural Cabana® Lemonade in 2011. Since then, and
with this initial product, we developed a nationwide distribution system
through more than 150 distributors in 50 US States, Canada, Mexico, Panama,
Bermuda and Ireland. We have secured listings with regional and national
grocery and convenience chain stores such as Walmart, Albertsons,
Kmart, Food City, Gelsons, Sprouts, Safeway, Whole Foods, HEB, Save Mart,
Walgreens, Kroger, Price Chopper, 7-Eleven, Winco Foods, HyVee, Fred Myers,
RaceTrac Petroleum and others. Our lemonades and limeades are now being
sold in more than 20,000 stores and our coconut waters are sold in more than
5,000 stores. Additionally, during the last few months we have received
approved listings at nationally recognized chain stores to carry our brands in
more than 2,500 stores.
On June 30, 2014
we began delivering lemonade to Smashburger®, the rapidly expanding “better
burger” restaurant, which will now be one of Pulse’s top food service accounts
offering Natural Cabana® Lemonade at all 265 locations nationwide.
Deliveries to Smashburger are being made through SYSCO and The Sygma Network
which represent a new channel of distribution into the multi-billion dollar
food service industry.
We
have been participating in a Colorado regional Walmart program called “Buy
Local, Buy Colorado Proud”. All 7 flavors of Natural Cabana® Lemonades and
Limeades were being prominently featured in a ten case floor stacker at over 50
Colorado Walmart locations from September 29, 2014 to October 26, 2014. The four-week
event was supported by radio commercials and three two-hour tasting events,
which included on-site radio. Due to the success of this program these
stores are continuing to carry our products and we are authorized to sell into
individual Walmart stores with manager approval in other regions of the United
States. To date we have been approved in more than 250 Walmart stores.
We have now been
in operation with our first product, Natural Cabana™ Lemonade, for less than
three years and have expanded this brand into Limeade and Raspberry Limeade,
which started selling in early 2014, and into Natural Cabana™ Coconut Water and
Pineapple Coconut Water, which started selling in March, 2014.
Our PULSE® Heart & Body Health functional beverages,
originally developed by Baxter Healthcare, will be marketed in a new,
non-gender-specific formulation in November. We believe the new formulation
will have significantly wider consumer appeal. We have completed the first
production run in October, 2014.
We currently develop, produce, market, sell and distribute our
brands through our strategic regional and international distribution system,
which includes more than 80% Class “A” distributors, such as United Natural
Foods, Inc. and distributors for Anheuser Busch, Miller Coors, Pepsi,
Coca-Cola, RC/7-Up, Cadbury Schweppes and SYSCO and The Sygma Network.
In the United States, the first quarter of 2014 was one of the
coldest, harshest winters in many decades, expectedly impacting sales of
lemonade and retailers across the country as delivery trucks throughout the
Northeast and Midwest were literally frozen in their tracks. Despite the
environmental challenges endured by the overall industry, we remained focused
on our planned strategies and spent the second and third quarters catching up
on sales and expanding our growth in Natural Cabana® Coconut Water domestically
and set the groundwork to expand into Mexico. Based on the success of our
Natural Cabana® Coconut Water roll-out in the U.S. and the lack of premium,
reasonably priced coconut water available in Mexico, we have incorporated a
wholly-owned subsidiary in Mexico, Natural Cabana S.A. de CV. Our Mexico
operations are being headed by Carlos Villarreal and his team, collectively,
Borrega Consulting Inc. (“Borrega”).
Borrega is a San Diego based international business development
consulting and brokerage firm with expertise in Latin American business development
for over 16 years. Mr. Villarreal was responsible for the Mexico introduction
and distribution of Monster Energy Drink® in 2004 and led the expansion across
all of Mexico up until June, 2010. Mr Villarreal has worked with leading brands
such as Dr. Pepper, Snapple, Miller, Patron Tequila, Titos Vodka among
others, in their entry/distribution strategies. He has also served as a
Director for Anheuser-Busch and for Grupo Modelo (Corona) in the U.S. and
Mexico. We are offering our Natural Cabana® Coconut Water in both Natural and
Pineapple in 520ml containers for convenience stores and both flavors in
smaller 320ml containers for large grocery chains.
6
In September, 2014 we secured a distribution agreement with Unique
Foods (Canada) Inc. (“Unique Foods”) to distribute Natural Cabana® Coconut
Water throughout Canada. Unique Foods is headquartered in Montreal, Canada with
an established presence in Atlantic and Western Canada, Ontario and Quebec
through coordinators and multiple independent regional distributors. Unique
Foods is a leading importer of premium beverage brands such as: Stewart’s Old
Fashioned Sodas, Cascade Ice™, Hype Energy™, AQUAhydrate™ and ACTIVATE® Vitamin
Drinks. Unique Foods will be offering Pulse’s Natural Cabana® Coconut Water in
both Natural and Pineapple flavors in 520ml rolled steel cans. In September
Unique Foods showcased Natural Cabana® Coconut Water at two trade shows, CHFA
Natural Foods Show in Toronto on September 13th and 14th and Grocery
Innovations Show in Toronto on September 28th and 29th. From these
tradeshows many major grocery, health and nutrition retailers have already
taken on the product and/or approved a listing for 2015.
In
October Unique Foods added Corwin Distribution Limited (“Corwin”) to provide
sales and distribution across Canada. Corwin is an established Eastern Canada
supplier of quality natural and organic products to more than 1,000 retailer
and vendor accounts. Through this distribution agreement, Corwin will supply Natural
Cabana™ Coconut Water to its natural and health food retailers including
Nutrition House, S&H Health Foods, Healthy Planet, Kardish Foods and
Pusateri’s Foods to name a few. Nutrition House, one of Canada's leading
natural health product franchises, operates 65 retail stores, located in
high-profile shopping centers across Canada and in the USA. S&H Health
Foods, one of Canada’s leading retailers of nutritional and natural products,
operates 28 retail stores in local area shopping malls located throughout the
Greater Toronto Area and in other Southern Ontario cities.
In
October we received, through Unique Foods’ efforts, a commitment from Sobeys to
list Natural Cabana™ Coconut Water in its warehouses where it will be available
to all Foodland franchisees as well as more than 300 independent grocery
stores. The Canadian franchised Foodland stores are locally owned and operated
supermarkets that focus on a no-frills customer convenience, offering a wide
selection of conventional supermarket products. Foodland stores are franchised
through Sobeys, the second largest food retailer in Canada. Currently there are
more than 150 Foodland locations in the province of Ontario and more than 60 in
Atlantic Canada.
In November we secured placement of Natural Cabana® Coconut
Water into Whole Foods® Market stores in Canada.
RESULTS OF
OPERATIONS
THREE MONTHS
ENDED SEPTEMBER 30, 2014 (“Q3-2014”) AND 2013 ("Q3-2013")
|
|
Q3-2014 $
|
|
|
Q3-2013 $
|
|
|
Increase (Decrease) $
|
|
|
|
|
|
|
|
|
|
|
|
Gross Sales
|
|
1,144,846 |
|
|
1,102,025 |
|
|
42,821 |
|
Less: Promotional Allowances and Slotting Fees
|
|
(107,371 |
) |
|
(93,314 |
) |
|
14,056 |
|
Net Sales
|
|
1,037,475 |
|
|
1,008,710 |
|
|
28,765 |
|
Cost of Sales
|
|
721,609 |
|
|
662,944 |
|
|
58,665 |
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
315,866 |
|
|
345,766 |
|
|
(29,900 |
) |
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
Advertising, samples and displays |
|
28,947 |
|
|
111,703 |
|
|
(82,756 |
) |
Freight-out |
|
118,013 |
|
|
114,898 |
|
|
3,115 |
|
General and administration |
|
426,047 |
|
|
394,930 |
|
|
31,117 |
|
Salaries and benefits and broker/agent’s fees |
|
357,562 |
|
|
383,031 |
|
|
(25,469 |
) |
Stock-based compensation |
|
- |
|
|
80,792 |
|
|
(80,792 |
) |
|
|
|
|
|
|
|
|
|
|
Total Operating Expenses
|
|
930,569 |
|
|
1,085,354 |
|
|
(154,785 |
) |
|
|
|
|
|
|
|
|
|
|
Net Operating Loss
|
|
(614,703 |
) |
|
(739,588 |
) |
|
(124,885 |
) |
|
|
|
|
|
|
|
|
|
|
Total Other Income (Expense)
|
|
(54,893 |
) |
|
3,214 |
|
|
58,107 |
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
(669,596 |
) |
|
(736,374 |
) |
|
(66,778 |
) |
Net Sales
During
Q3-2014, gross revenues, on sales of more than 100,000 cases of Natural Cabana®
Lemonade, Limeade and Coconut Water (Q3-2013 – 92,500), before slotting fees
and other promotional allowances, increased by $102,173 to $1,144,846 (Q3-2013
- $1,042,673). This is an increase of 10% over Q3-2013. During
Q3-2014 we did not sell Pulse® as we were switching to the newly developed,
non-gender specific, Pulse® Heart & Body Health. During Q3-2013 we had
gross sales of $59,352 of Pulse®.
7
Net
sales during Q3-2014 increased by $28,765 to $1,037,475 (Q3-2013 - $1,008,710)
after slotting fees and other promotional allowances of $107,371 or 9.4% of
sales (Q3-2013 - $93,314 or 8.5% of sales). Slotting fees and other promotional
allowances increased during Q3-2014, as a percentage of sales, due to the
economic decision to pay slotting fees to large retailers such as: Albertsons,
Sprouts, Walgreens, Quicktrip and Racetrac Petroleum, which slotting fees
amounted to $26,058 during Q3-2014 as compared to $10,573 for Smith Foods only.
Cost of Sales
Cost
of sales for Q3-2014 increased by $58,665 to $721,609 (Q3-2013 – $662,944) due
to a small increase in sales volume and increased cost of raw materials, mainly
because of US anti-dumping petitions against Mexican sugar suppliers. As a
percentage of net revenue, cost of sales for Q3-2014 was 69.6% (Q3-2013 – 65.7%).
Cost of sales includes raw materials, co-packing services and lab testing.
There is increasing price pressure from suppliers of our raw materials. We
continue to buy in volume where economically feasible.
Gross
Profit
Gross
profit for Q3-2014 decreased by $29,900 to $315,866 (Q3-2013 - $345,766) due to
higher proportion increase in raw materials to the increase in sales during Q3-2014.
Gross profit for Q3-2014 was 30.4% (Q3-2013 – 34.3%). The decrease was due to
higher raw material costs as mentioned above.
Expenses
Advertising,
samples and displays
During
Q3-2014, advertising, samples, in-store demos and in-store display expenses decreased
by $82,756 to $28,947 (Q3-2013 - $111,703). As a percentage of net sales, this
expense was 2.8%, compared with 11.1% in Q3-2013. This expense includes
in-store sampling, samples shipped to distributors, display racks, ice barrels,
sell sheets, shelf strips and door decals. We expect this expense to increase
in proportion to increases in sales, mainly due to the introduction of Natural
Cabana™ Coconut Water and the re-formatted PULSE® Heart & Body Health
functional beverages, and due to an overall increase in distribution reach both
in the United States and internationally. We expect this expense, as a
percentage of sales, to be on average 5% of net revenue. During Q3-2014 we made
the decision to reduce in-store sampling and we did not require display racks,
ice barrels, sell sheets, shelf strips and door decals at the same rate as
Q3-2013.
Freight-out
During
Q3-2014, freight-out increased by $3,115 to $118,013 (Q3-2013 - $114,898) due
to the increase in case sales. On a per case basis, freight-out increased by
$0.08 per case to $1.18 (Q3-2013 - $1.10). This per case increase of $0.08 was
due to higher gasoline prices and average proximity of co-packer to distributor.
We expect freight-out, on a per case basis, to decrease due to the lower
shipping cost of Natural Cabana™ Coconut Water and the lower shipping cost of
our PULSE® Heart & Body Health functional beverages.
General and
administrative
General and
administration expenses for Q3-2014 and Q3-2013 consist of the following:
|
|
Q3-2014 $
|
|
|
Q3-2013 $
|
|
|
Increase (Decrease) $
|
|
Advisory, board and consulting fees
|
|
12,000 |
|
|
8,200 |
|
|
3,800 |
|
Amortization and depreciation
|
|
30,435 |
|
|
24,275 |
|
|
6,160 |
|
Legal, professional and regulatory fees
|
|
44,938 |
|
|
39,865 |
|
|
5,073 |
|
Office, rent and telephone
|
|
80,771 |
|
|
130,268 |
|
|
(49,497 |
) |
Shareholder, broker and investor relations
|
|
163,173 |
|
|
92,439 |
|
|
70,734 |
|
Trade shows
|
|
5,199 |
|
|
4,690 |
|
|
509 |
|
Travel and meals
|
|
89,531 |
|
|
95,193 |
|
|
(5,662 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
426,047 |
|
|
394,930 |
|
|
31,117 |
|
During
Q3-2014, general and administrative expenses increased by $31,117 to $426,047 (Q3-2013
- $394,930). Amortization and depreciation increased by $6,160 due to the
increased amortization of our property and equipment. Legal, professional and
regulatory fees increased by $5,073 to $44,938 (Q3-2013-39,865) due to a
one-time legal expense associated with terminating a distributor contract. Office,
rent and telephone decreased by $49,497 to $80,771 (Q3-2013 - $130,268). The
decrease is due to a one-time expense and timing issue during Q3-2013. Office,
rent and telephone should remain constant at $20,000 per month. During Q3-2014 shareholder,
broker and investor relations expense increased by $70,734 to $163,173. Travel
and meals decreased by $5,662 to $89,531 (Q3-2013 - $95,193).
8
Salaries and benefits and broker/agent’s fees
During
Q3-2014, salaries and benefits and broker/agent’s fees decreased by $25,469 to
$357,562 (Q3-2013 - $383,031). We expect to increase this cost during the
remainder of the year as we hire additional regional and district managers and
additional staff for the introduction of the re-formatted PULSE® Heart &
Body Health functional beverages and the continued growth of Natural Cabana™
Coconut Water domestically and into Canada and Mexico.
Stock-based
compensation
During
Q3-2014, we had no further stock-based compensation cost from our stock options
granted in 2012. We have no further unrecognized stock-based compensation cost
to record. During Q3-2013 we had a reversal of stock-based compensation due
mainly to the discontinuance of our equity incentive plan where we reversed
out, during Q3-2013, $405,000 of accrued charges to the end of March 31, 2013
resulting in a negative $167,877 in stock-based compensation
Other
Income (Expense)
During
Q3-2014, we incurred an asset impairment charge of $55,996 for old inventory
written-off. During Q3-2014 we received $1,850 (Q3-2013 - $3,647) of interest
income from interest earned on our cash balances and long-term note receivable
less interest expense of $746 (Q3-2013 - $433).
Net
Loss
Net loss for Q3-2014
decreased by $66,778 to $669,596, or $0.01 per share, compared with a net loss
for Q3-2013 of $736,374. Our net losses to date, for the most part, continues
to be the result of a concentrated effort to establish and increase brand
awareness; and establish and improve upon our extensive nationwide and international
distribution systems. Our net losses are also due to the development of our
brands including: Natural Cabana® Lemonade and Limeade and Coconut Waters and
to secure distribution and chain store listings.
NINE MONTHS
ENDED SEPTEMBER 30, 2014 (“2014”) AND 2013 (“2013”)
|
|
2014
$
|
|
|
2013
$
|
|
|
Increase (Decrease) $
|
|
|
|
|
|
|
|
|
|
|
|
Gross Sales
|
|
3,198,935 |
|
|
3,379,815 |
|
|
(180,880 |
) |
Less: Promotional Allowances and Slotting Fees
|
|
(236,141 |
) |
|
(251,924 |
) |
|
(15,783 |
) |
Net Sales
|
|
2,962,794 |
|
|
3,127,891 |
|
|
(165,097 |
) |
Cost of Sales
|
|
1,994,117 |
|
|
2,026,118 |
|
|
(32,001 |
) |
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
968,677 |
|
|
1,101,773 |
|
|
(133,096 |
) |
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
Advertising, samples and displays |
|
102,176 |
|
|
242,555 |
|
|
(140,379 |
) |
Freight-out |
|
326,831 |
|
|
345,704 |
|
|
(18,873 |
) |
General and administration |
|
1,264,257 |
|
|
1,183,804 |
|
|
80,453 |
|
Salaries and benefits and broker/agent’s fees |
|
1,015,393 |
|
|
1,063,151 |
|
|
(47,758 |
) |
Stock-based compensation |
|
166 |
|
|
394,845 |
|
|
(394,679 |
) |
|
|
|
|
|
|
|
|
|
|
Total Operating Expenses
|
|
2,708,823 |
|
|
3,230,059 |
|
|
(521,236 |
) |
|
|
|
|
|
|
|
|
|
|
Net Operating Loss
|
|
(1,740,146 |
) |
|
(2,128,286 |
) |
|
(388,140 |
) |
|
|
|
|
|
|
|
|
|
|
Total Other Income (Expense)
|
|
(51,828 |
) |
|
12,378 |
|
|
64,206 |
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
(1,791,974 |
) |
|
(2,115,908 |
) |
|
(323,934 |
) |
Net Sales
During
2014, gross revenues, on sales of 280,150 cases of Natural Cabana® Lemonade,
Limeade and Coconut Water (2013 – 295,342), before slotting fees and other
promotional allowances, decreased by $106,693 to $3,197,536 (2013 - $3,304,229).
Net
sales during 2014 decreased by $165,097 to $2,962,794 (2013 - $3,127,891)
after slotting fees and other promotional allowances of $236,141 or 7.4% of
sales (2013 - $251,924 or 7.0% of sales). The reason 2014 results are lower
than 2013 is due to Q1-2014 being one of the
coldest, harshest winters in many decades, expectedly impacting sales of
lemonade and retailers across the country. The last two quarters we have
been catching up on sales.
9
Cost
of Sales
Cost
of sales for 2014 decreased by $32,001 to $1,994,117 (2013 – $2,026,118) due to
a decrease in sales volume and increased cost of raw materials, mainly because
of US anti-dumping petitions against Mexican sugar suppliers. As a percentage
of net revenue, cost of sales for 2014 was 67.4% (2013 – 64.8%). Cost of sales
includes raw materials, co-packing services and lab testing. There is
increasing price pressure from suppliers of our raw materials. We continue to
buy in volume where economically feasible.
Gross Profit
Gross
profit for 2014 decreased by $133,096 to $968,677 (2013 - $1,101,773)
due to a higher proportion increase in raw materials to the increase in sales
during 2014. Gross profit for 2014 was 32.7% (2013 – 35.2%).
Expenses
Advertising,
samples and displays
During
2014, advertising, samples, in-store demos and in-store display expenses
decreased by $140,379 to $102,176 (2013 - $242,555). As a percentage of net
sales, this expense was 3.4%, compared with 7.8% in 2013. This expense includes
in-store sampling, samples shipped to distributors, display racks, ice barrels,
sell sheets, shelf strips and door decals. We expect this expense to increase
in proportion to increases in sales, mainly due to the introduction of Natural
Cabana™ Coconut Water and the re-introduced PULSE® brand of Heart Healthy
functional beverages, and due to an overall increase in distribution reach both
in the United States and internationally. We expect this expense, as a
percentage of sales, to be on average 5% of net revenue. During 2014 we made
the decision to reduce in-store sampling and we did not require display racks,
ice barrels, sell sheets, shelf strips and door decals at the same rate as
2013.
Freight-out
During
2014, freight-out decreased by $18,873 to $326,831 (2013 - $345,704) due to the
decrease in case sales and because very few shipments were made to a large area
of the United States because of bad weather during the early part of 2014. On a
per case basis, freight-out increased by $0.04 per case to $1.17 (2013 - $1.13).
This per case increase was due to higher freight costs and poor weather issues.
We expect freight-out on a per case basis to decrease due to the lower shipping
cost of Natural Cabana™ Coconut Water and the lower shipping cost of our PULSE®
brand of Heart Healthy functional beverages.
General and
administrative
General and
administration expenses for 2014 and 2013 consist of the following:
|
|
2014 $
|
|
|
2013 $
|
|
|
Increase (Decrease) $
|
|
Advisory, board and consulting fees
|
|
36,000 |
|
|
72,279 |
|
|
(36,279 |
) |
Amortization and depreciation
|
|
89,708 |
|
|
65,701 |
|
|
24,007 |
|
Legal, professional and regulatory fees
|
|
121,173 |
|
|
133,561 |
|
|
(12,388 |
) |
Office, rent and telephone
|
|
236,871 |
|
|
308,618 |
|
|
(71,747 |
) |
Research and development
|
|
34,596 |
|
|
- |
|
|
34,596 |
|
Shareholder, broker and investor relations
|
|
435,214 |
|
|
300,412 |
|
|
134,802 |
|
Trade shows
|
|
41,723 |
|
|
10,350 |
|
|
31,373 |
|
Travel and meals
|
|
268,972 |
|
|
292,883 |
|
|
(23,911 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
1,264,257 |
|
|
1,183,804 |
|
|
80,453 |
|
During
2014, general and administrative expenses increased by $80,453 to $1,264,257
(2013 - $1,183,804). We reduced our advisory, board and consulting fees by $36,279
due to the reduction of one advisory board member. Amortization and
depreciation increased by $24,007 due to the increased amortization of our
property and equipment. Legal, professional and regulatory fees decreased by $12,388
to $121,173 (2013- $133,561). Office, rent and telephone decreased by $71,747
to $236,871 (2013 - $308,618). The decrease is due to a one-time expense and
timing issue during 2013. Office, rent and telephone should remain constant at
$20,000 per month. During 2014 shareholder, broker and investor relations
expense increased by $134,802 to $435,214. Trade shows increased by $31,373 to
$41,723 (2013 - $10,350) due to attending a number of additional financial and
product trade shows during 2014. Travel and meals decreased by $23,911 to
$268,972 (2013 - $292,883).
10
Salaries and benefits and broker/agent’s fees
During
2014, salaries and benefits and broker/agent’s fees decreased by $47,758 to $1,015,393
(2013 - $1,063,151). We expect this cost will increase during the
remainder of the year as we hire additional regional and district managers and
additional staff for the introduction of the re-formatted PULSE® Heart &
Body Health functional beverages and the continued growth of Natural Cabana™ Coconut
Water domestically and into Canada and Mexico.
Stock-based
compensation
During
2014, we had recognized $166 of the remaining unrecognized stock-based
compensation cost from our stock options granted in 2012. We have no further
unrecognized stock-based compensation cost to record. During 2013 we had a
reversal of stock-based compensation due mainly to the discontinuance
of our equity incentive plan where we reversed out, during 2013, $405,000 of
accrued charges.
Other Income
(Expense)
During
2014, we incurred an asset impairment charge of $55,996 for old inventory
written-off. During 2013 we incurred an asset impairment charge for
manufacturing and display equipment that we no longer used. During 2014, we
recognized a forgiveness of debt gain of $nil (2013 - $6,486). During 2014 we
received $6,319 (2013 - $13,710) of interest income from interest earned on our
cash balances and long-term note receivable less interest expense of $2,151 (2013
- $433).
Net
Loss
Net loss for 2014
decreased by $323,934 to $1,791,974, or $0.04 per share, compared with a net
loss for 2013 of $2,115,908, or $0.04 per share. Our net losses to date, for
the most part, continue to be the result of a concentrated effort to establish
and increase brand awareness; and establish and improve upon our extensive nationwide
and international distribution systems. Our net losses are also due to the
development of our brands including: Natural Cabana® Lemonade and Limeade and
Coconut Waters and to secure distribution and chain store listings.
LIQUIDITY
AND CAPITAL RESOURCES
Overview
During the nine
months ended September 30, 2014, our cash position decreased by $1,609,216 to $165,778,
and our working capital position decreased by $1,515,746 to $1,672,796. We have
no long-term debt. As at September 30, 2014, our working capital consisted
of: cash
of $165,778; customer accounts receivable of $772,999, net of an allowance for
bad debts of $13,680; other receivables of $27,963, inventories of $1,259,859
(including finished product of $571,841, deposits towards finished goods to be
manufactured of $67,706, work in process of $15,122, and raw materials of $605,190);
and other current assets of $133,857. Our accounts payable were $687,659.
The following
table sets forth the major sources and uses of cash for the nine months ended September
30, 2014 (“2014”) and 2013 (“2013”):
|
|
2014
$
|
|
|
2013
$
|
|
Net
cash used in operating activities
|
|
(1,626,459 |
) |
|
(2,300,228 |
) |
Net
cash used in investing activities
|
|
(32,757 |
) |
|
(88,168 |
) |
Net
cash provided by financing activities
|
|
50,000 |
|
|
4,058,600 |
|
Net
increase (decrease) in cash
|
|
(1,609,216 |
) |
|
1,670,204 |
|
Cash Used in
Operating Activities
During
2014, we used $1,626,459 (2013 - $2,300,228) in operating activities. This was
made up of the net loss of $1,796,059 (2013 - $2,115,908), less adjustments for
non-cash items such as: shares and options issued for services of $221,166
(2013 - $666,628), asset impairment charge of $55,996 (2013 - $7,385), and
amortization and depreciation of $89,708 (2013 - $65,701), all totaling $366,870
(2013 - $739,714). After non-cash items, the net loss was $1,429,189 (2013 - $1,376,194).
We used $197,270 (2013 - $809,342) in net increases in operating assets and
liabilities. We used $369,563 (2013 - $601,359) due to an increase in accounts
receivable, and $124,506 (2013 - $487,866) due to increases in inventory
levels. We received $286,241 (2013 - $222,537), due to credit
extended by our suppliers resulting in increases in accounts payable. We received
$6,473
from an increase in prepaid expenses (2013 – $57,346).
11
Cash
Used in Investing Activities
During
2014, we used $32,757 for investing activities. A total of $26,139 was spent on
trademarking and $10,566 on Pulse® formula documentation and approvals. We received
$3,949 in principal repayments against our long-term loan receivable.
During 2013 we used $88,168 in investing activities. We
spent $36,240 on die cuts, coolers, office equipment and a two delivery vans.
We spent $12,892 on formulation costs associated with bringing PULSE® into
commercial production. These costs were associated with third party lab testing
and consultants to document and review our PULSE® formulas. We also spent $14,805
advancing our trademarks for PULSE® and Natural Cabana® and we spent $28,025 to
develop and launch a new website including on-line shopping capabilities.
Cash
Provided by Financing Activities
During 2014, we received $50,000 from subscription proceeds. Terms
of the subscription are subject to terms of a new private equity offering
currently being completed.
During 2013, we received $4,058,600 from
financing activities. We received $4,102,700, net of $156,600 of share issuance
costs, and issued 10,256,750 common shares and 10,256,750 common share purchase
warrants pursuant to our $0.40 Unit offering. We received $100,000 and issued
125,000 common shares and 125,000 common share purchase warrants pursuant to
our $0.80 Unit offering. We received $12,500 and issued 25,000 common shares
pursuant to a stock option being exercised by a consultant at $0.50 per
share.
Additional Capital
As a result of our operating
losses, we will need additional capital. We have more than 20 million warrants
outstanding to purchase up to 20 million common shares at an average exercise
price of $0.62 per common share, which could, if exercised, raise us in excess
of $12.5 million. We have no assurance, however, that we will ever see this additional
money, as the warrant holders must first choose to exercise their warrants.
OFF
BALANCE-SHEET ARRANGEMENTS
We have not had,
and at September 30, 2014, do not have, any off-balance sheet arrangements that
have or are reasonably likely to have a current or future effect on our
financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources
that is material to investors.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
Our discussion
and analysis of our financial condition and results of operations are based
upon our financial statements that have been prepared in accordance with
generally accepted accounting principles in the United States of America
("US GAAP"). This preparation requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses, and the disclosure of contingent assets and liabilities.
US GAAP provides the framework from which to make these estimates, assumption
and disclosures. We choose accounting policies within US GAAP that management
believes are appropriate to accurately and fairly report our operating results
and financial position in a consistent manner. Management regularly assesses
these policies in light of current and forecasted economic conditions. While
there are a number of significant accounting policies affecting our financial
statements, we believe the critical accounting policies involving the most
complex, difficult and subjective estimates and judgments are: revenue
recognition, stock-based compensation and use of estimates as discussed in Note
2 to the interim unaudited Condensed financial statements included in Item 1 to
this Form 10Q.
RECENTLY ISSUED
ACCOUNTING PRONOUNCEMENTS
There have been
no recently issued Accounting Pronouncements that impact us.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are a smaller
reporting company as defined by Rule 12b-2 of the Securities Exchange Act of
1934 and are not required to provide the information under this item.
ITEM 4. CONTROLS
AND PROCEDURES.
Evaluation of
Disclosure Controls and Procedures
Robert Yates,
who is both our chief executive officer and our chief financial officer, is
responsible for establishing and maintaining our disclosure controls and
procedures. Disclosure controls and procedures are designed to
ensure that information we are required to disclose in the reports that we file
or submit under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission’s rules and forms, and to ensure that information required
to be disclosed by us in those reports is accumulated and communicated to the
our management, including our principal executive and principal financial
officer, or persons performing similar functions, as appropriate to allow
timely decisions regarding required disclosure. Our chief executive
officer and chief financial officer evaluated the effectiveness of our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934) as of September 30, 2014. Based on
that evaluation, it was concluded that our disclosure controls and procedures
were effective as of September 30, 2014.
12
Changes in
internal controls
There were no
changes in our internal controls over financial reporting that occurred during
the quarter ended September 30, 2014 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
13
PART
II. OTHER INFORMATION
ITEM 1. LEGAL
PROCEEDINGS.
None.
ITEM 1A. RISK
FACTORS.
In addition to
the other information set forth in this report, you should carefully consider
the risks and uncertainties described in Item 1A of our 2013 Form 10-K.
In our judgment, there were no material changes in the risk factors as
previously disclosed in Item 1A of our 2013 Form 10-K.
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
|
On July 1, 2014, we issued 150,000 common shares having a fair value of $72,000 pursuant to a service agreement; |
|
On September 29, 2014, we issued 100,000 common shares having a fair value of $36,000 pursuant to a service agreement. |
Subsequent to September 30, 2014, we issued the following securities in unregistered transactions:
|
On October 1, 2014, we issued 100,000 common shares having a fair value of $36,000 pursuant to a service agreement. |
|
On October 22, 2014, we issued 500,000 common shares having a fair value of $150,000 pursuant to a service agreement. |
|
On October 1, 2014, we issued 100,000 common shares having a fair value of $26,000 pursuant to a service agreement. |
We relied upon
the exemption provided by Section 4(a)(2) of the Securities Act of 1933, as
amended (the “Securities Act”) in connection with issuance of these
securities. The persons who acquired these securities were “sophisticated
investors” and were provided full information regarding our business and
operations. There was no general solicitation in connection with the offer or
sale of these securities. The persons who acquired these securities acquired
them for their own accounts. The certificates representing the shares of common
stock will bear restricted legends providing that they cannot be sold except
pursuant to an effective registration statement or an exemption from registration
under the Securities Act. No commission was paid to any person in connection
with the issuance of these securities.
ITEM 3. DEFAULT
UPON SENIOR SECURITIES.
None.
ITEM 4. MINE
SAFETY DISCLOSURE
Not applicable.
ITEM 5. OTHER
INFORMATION.
None.
ITEM 6.
EXHIBITS.
The
following documents are included herein:
*Provided
herewith
(1)
|
Incorporated
by reference from our report on Form 8-K filed February 22, 2011.
|
(2)
|
Incorporated
by reference from our Registration Statement on Form SB-2 filed December
7, 2007.
|
14
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
THE
PULSE BEVERAGE CORPORATION |
|
|
Date: November
14, 2014 |
BY: |
/s/ Robert
Yates
|
|
|
Robert
Yates, President, Chief Executive, Financial and Operating Officer, and
Treasurer (Principal Executive Officer, Principal Financial Officer &
Principal Accounting Officer) |
15
Exhibit 31.1
OFFICER’S CERTIFICATE PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert Yates, certify that:
1. |
I have reviewed this Quarterly Report on Form 10-Q of The Pulse Beverage Corporation; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: November 14, 2014
|
/s/ Robert
Yates |
|
Robert
Yates |
|
Chief
Executive Officer |
|
(Principal
Executive Officer) |
Exhibit 31.2
OFFICER’S CERTIFICATE PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert Yates, certify that:
1. |
I have reviewed this Quarterly Report on Form 10-Q of The Pulse Beverage Corporation; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: November 14, 2014
|
/s/ Robert
Yates |
|
Robert
Yates |
|
Chief
Financial Officer |
|
(Principal
Financial Officer) |
Exhibit 32.1
CERTIFICATION
PURSUANT TO
18 U.S.C.
SECTION 1350
AS ADOPTED
PURSUANT TO
SECTION
906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of The Pulse Beverage Corporation
(the “Company”) on Form 10-Q for the quarterly period ended September 30, 2014,
as filed with the Securities and Exchange Commission on the date hereof (the
“Report”), I, Robert Yates, Chief Executive Officer and Chief Financial
Officer, on the date indicated below, hereby certify pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that to the best of my knowledge:
|
1. |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
|
2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company. |
Date: November 14, 2014 |
By: |
/s/ Robert Yates |
|
|
Robert Yates |
|
|
Chief Executive Officer (Principal Executive Officer) & Chief
Financial Officer (Principal Financial Officer and Principal Accounting
Officer) |